Zoning Compliance, "Illegal Use", and the 1004

[The Warrior Monk]

So, that's what drove my question regarding the Fannie Form specifically: Is there a definitive definition of what Fannie concludes an "illegal" use is?)

I do little Fannie work, so I'm no expert on the matter.

I would speculate that illegal refers specifically to use, given that Fannie only buys only certain residential loans that fit a certain criteria. A garage converted to living space doesn't change the use of the property so theoretically it would still fit the loan program. A home illegally converted to a convenience store with a gas pump out front would not.

Hard money lenders may actually find the latter situation acceptable and lend money on it (with the appropriate, likely higher, rate).

 

[Ben Vukicevich SRA]

Denis,

Regarding the statement you posted out of the Fannie guide, I believe it goes on to state that the appraiser is to ignore the income from the illegal unit also. The permitted USE intensity of the zone is being violated in that example. My prior statements are consistent with the Fannie guide examples.

Example: The area is zoned for 2 units but there is an illegal third unit in the basement or attic. You are to assign no income/value to the illegal third unit. They're just basically, taking the subject's value back to what's allowed in the zone: two units.

So in your example posted, in my town, your subject would be a legal use (a one unit residential use in an area zoned for one unit residential.)

Your structure/dwelling would be a non-conforming structure as it violates the zoning district's bulk yard requirements as it does not have a covered parking space. It would also violate those requirements if it was not big enough, or if too big as to violate the allowable lot coverage percentage or the required yard setbacks, etc.

Your site would be conforming or non-conforming if it did or did not meet the current site size for the zoning district.

A suggestion: cruise on line and see if there are any zoning ordinances posted for nearby towns in your state. Zip to the definition section and see if they define non-conforming structures or sites/lots. Maybe those terms are not used in your area.

 

[hastalavista]

Ben-

The terminology is similar if not the same re: Use & non-conforming buildings, etc. Even when I talk to planners, they sometimes say that a structure is "illegal" vs. "non-conforming".

Here's how I interpret the Fannie guidelines to be applied in a real-life situation:

Let's say someone has a house in a one-unit residential zoned area. And, let's say that it conforms to the min. lot size (in fact, it's site area is equal to the minimum lot size). So, as "was", it is conforming with no issues.
Next, let's say that a second unit is built on the property and the size is 1,000sf.
The zoning allows for a second unit, but with conditions: In addition to the required permits, the following is also required per zoning:
A. Lot size has to be minimum + 30% for a second unit.
B. Owner of record must live in one of the units; this requirement transfers with the property.
C. Size of the accessory unit is limited to 800sf.

Our owner of record does not live on-site. So, there are three issues with our subject vs. the zoning ordinance (other than it is not permitted to begin with):
A1: It is on a lot that doesn't qualify for an accessory unit.
B1: It is non-owner occupied (as it turns out, both units are being rented out).
C1: The size of the accessory unit exceeds what would have been allowed.

So, in this case, the general use is still "residential", but (for lack of a better term at this stage) the "real life" use is of a multi-family property. And, to add insult to injury, even if the owner did reside at one of the units, the additional unit would not have been allowed to be built anyway.

In reading Fannie's guidelines, I would interpret the subject to have an illegal use? The conforming use is for one-unit residential, and the real-life use is multi-family residential.

(This will be my last question, as I think I've beaten this horse into the ground!:new_smile-l: )

 

[The Warrior Monk]

The rules appear to have been bent with regard to additional living units being added to single-family residences. When I used to work in a strictly primary owner-occupied community, there were areas where I never appraised a home that didn't have a second unit. My guess would be that Fannie didn't want to cut of their nose to spite their face, so gave some leeway on that particular issue.

 

[Mike Kennedy]

Denis - suggest also adding

d. Restricted Use Accessory Apartment C.O. / Permit which may or may not expire on transfer - depending on muncipality.... typically they DO NOT transfer. The legal, approved, use is for FAMILY occupancy - only including Owner primary residence in main dwelling or main section of the house.

VERYYYYYY common in my markets........ approximately 50% are illegally rented to non-family occupants.

 

[MARK JOLLIFF]

I would call it illegal, explain why and find similar comps. Most areas I've appraised that have converted garages w/o covered parking have plenty of similar homes in the neighborhood. I would also explain the apparent age of these conversions and their acceptance in the market place with comments about a lack of enforcement (if applicable) historically. These statements would be true in Vallejo and Concord in my experience. Of course all of this is predicated on the assumption that the issue won't interfere with me hitting the predetermined value!( will someone PM me and explain how to put smily faces and stuff in my posts before I end up before the man).

 

[BOB PADRICK]

Generally I default to thinking

like a banker would if considering trying to sell the property. In other words, what would potentially be pitfalls to reselling a foreclosed property.

In this case, the garage conversion would definitely be something required to be disclosed upon a resale, at least in florida. As a result, I'd list it as illeagal. As for the conforming-hmmm....I've always used that a a placeholder for things further zoning compliance issues (ie-legal non-conforming for properties that were grandfathered in).

Again, this is because of the potential for foreclosure. If it would potentially cloud the sale, I list it. In this case, I'd call it illeagal non conforming, and then if there are many properties like that, I'd use them as comps, and discuss it in the rest of the appraisal.

As usual, for unusual properties, forms are inadequate. Just write about it, and whatever you check will be supported. Be prepared for howls if you check anything other than legal conforming-which I don't happen to agree with here.

Remember, on the forms, what zoning is in the zoning office doesn't necessarily apply. Just like puds, what the dictionary definition is may not apply. What is important is what the lender wants to know-is there anything so weird about this property that it would be hard to resell if necessary.

At present, that would be the least of their worries-but given how hard it is to sell stuff now anyway, anything else that doesn't fit may not be what they are looking to underwrite. May not be the most elegant USPAP based solution, but I try to look out for my clients, even when they don't want me too!!!